“Regulation isn’t an obstacle to thriving free markets; it’s a vital part of them”*…
30 years or so ago, your correspondent’s father-in-law dragged him along to a cocktail party in D.C. at which we encountered Bill McGowan, the then-Chairman of MCI, the alternative long-distance company that prospered as ATT’s monopoly hold on the market eroded, then evaporated. As another gentleman joined our little group, McGowan smiled archly and said, “ah, here’s my head of R&D”… then introduced us to his General Counsel.
Of course, business strategies that turn on challenging regulatory regimes, or practicing regulatory arbitrage, date back much further than MCI. Indeed, Theodore’s Vail Bargain (creating the Bell System monopoly) in the early 20th century created the status quo that McGowan (and others) later attacked.
More often than not, emerging technology has enabled (if not, indeed, driven) these regulation-challenging new entrants. So it’s no surprise that we find the marketplace today positively rife with them.
Elizabeth Pollman, of Loyola (Los Angeles) Law School, and Jordan M. Barry, of UC San Diego Law School, have studied the phenomenon…
This Article examines what we term “regulatory entrepreneurship” — pursuing a line of business in which changing the law is a significant part of the business plan. Regulatory entrepreneurship is not new, but it has become increasingly salient in recent years as companies from Airbnb to Tesla, and from DraftKings to Uber, have become agents of legal change. We document the tactics that companies have employed, including operating in legal gray areas, growing “too big to ban,” and mobilizing users for political support. Further, we theorize the business and law-related factors that foster regulatory entrepreneurship. Well-funded, scalable, and highly connected startup businesses with mass appeal have advantages, especially when they target state and local laws and litigate them in the political sphere instead of in court.
Finally, we predict that regulatory entrepreneurship will increase, driven by significant state and local policy issues, strong institutional support for startup companies, and continued technological progress that facilitates political mobilization. We explore how this could catalyze new coalitions, lower the cost of political participation, and improve policymaking. However, it could also lead to negative consequences when companies’ interests diverge from the public interest…
Further to the notion that “the Internet might provide profitable opportunities at the edges of the legal system.” see also “Strategic Law Avoidance Using the Internet: A Short History” (pdf) by Tim Wu of Columbia Law School.
[TotH to Matt Levine, whose column/newsletter “Money Stuff” is quite wonderful.]
* James Surowiecki
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As we’re careful for what we ask, we might send mannerly birthday greetings to Baldassare Castiglione; he was born on this date in 1478. A Renaissance soldier, diplomat, and author, he is most famous for The Book of the Courtier.– a prime example of the courtesy book, offering advice on and dealing with questions of the etiquette and morality of the courtier– which was enormously influential in 16th century European court circles.
Raphael’s portrait of Baldassare Castiglione